Key Takeaways:
- US stocks fall as the 30-year Treasury yield hits its highest level since 2007.
- Rising oil prices above $110 a barrel add to inflation and market concerns.
- The tech sector's leadership is at risk after a powerful second-quarter rally.
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US Stocks Tumble as 30-Year Treasury Yield Nears 2007 High
The S&P 500 tumbled 1.24% on Friday as a surge in global bond yields and rising oil prices stoked fears that the market’s powerful, tech-driven rally is on borrowed time.
“The swift rise in bond yields, if sustained, could threaten the tech sector’s leadership in the stock market, especially at a time when things have been frothy,” said Richard Reyle, chief investment officer at Questar Capital Partners. “The vertical move upward in tech is not sustainable.”
The selloff was triggered by a sharp repricing in the U.S. Treasury market, where 30-year bond yields surged to 5.159%, approaching their highest levels since 2007. The benchmark 10-year Treasury yield also climbed, settling at 4.597% after adding more than 20 basis points last week. The move comes after an index of the Magnificent Seven mega-cap tech giants has risen 22.6% since the start of the second quarter, with the PHLX semiconductor index advancing a staggering 52.7% over the same period.
The combination of higher borrowing costs and persistent inflation is forcing a rethink of market dynamics, which have been powered by enthusiasm for artificial intelligence. The market is now pricing in a 50% chance of an interest-rate hike by the end of the year. A key test for the tech sector will come with Nvidia’s first-quarter earnings report on Wednesday.
Adding to the pressure, oil prices continued their ascent, with Brent crude contracts for July delivery rising 0.95% to $110.30 a barrel. The increase comes as the war between the U.S. and Iran enters its 80th day, with little sign of a lasting truce. “The oil market continues to reprice ongoing supply disruptions, with last week’s Trump-Xi talks yielding no tangible progress in the Middle East,” said Warren Patterson, head of commodities strategy at ING.
The market’s momentum is also flashing warning signs. The S&P 500’s relative strength index (RSI), a measure of market momentum, recently topped 78. Jonathan Krinksy, chief market technician at BTIG, noted that in five of the last six times the index fell more than 1% after an RSI reading above 75, a peak-to-trough decline of at least 7% followed.
“While global equity markets have recently done a stunning job of posting a comeback from weak sentiment triggered by the war in Iran, spiking global yields nonetheless dramatically raise the risk of ‘risk-off’ across markets,” said John Hardy, global head of macro strategy at Saxo Bank.
This article is for informational purposes only and does not constitute investment advice.
[1] Rising Oil Prices Are Testing the Tech-Powered Rally. But There’s an Even Greater Threat. - Barron's[2] Government borrowing costs are at 22-year highs[3] Asian shares dive as US yields hit one-year high[4] Why rising bond yields are a tax on every asset you own — and what it means for the ASX right now[5] There’s still no light at the end of the tunnel
